401K Archives - MoneyWatch101

Withdrawing from the 401K

Many people are withdrawing from their 401k funds and losing out on a big opportunity to make money in the future. Every time someone switches jobs I bet a little piece of them is wondering, what can I buy with this 401K money I have saved for years? The answer should be nothing, but that is not the case for millions of working adults. It goes to show that many people do not understand the full effect and repercussions involved when they take out retirement account money.

The only funds you can take out are the contributions of a Roth IRA that has been established for some time. When in doubt ask, and when in further doubt, have the check made out to Vanguard. (Never have the check made out in your name) Why do we tap into these funds without finding out all the information involved in the transaction?

Continue reading Withdrawing from the 401K

Pension Concerns are Alarming

Do you know that many municipalities in the US are filing for bankruptcy due to retirement pension default? A recent report released by Bridgewater states that 85% of them will fail in a specific time frame. How confident are you that your pension will last you the rest of your living years? This is why pension concerns are alarming for millions of people in the US. It is a frantic time for anybody who is dependent on that pension succeeding because most are hanging on a short financial string. A sharp scissor is ready to cut funding and politicians could care less. The problem in my opinion is that the people who manage the funds, are not doing enough to grow it, or are misusing the money for the municipality’s other budget shortfalls.

Private pensions are on the same boat as the public pensions. The corporation who was set up to help failing pensions is 34 billion in deficit. The numbers do not lie as it beckons anyone who believes pensions will be around to support them. As quoted in Forbes, “Over the past forty years the Pension Benefit Guaranty Corporation has assumed responsibility for thousands of failed plans. Traditional defined benefit pension plans offered by private employers are rapidly facing extinction and with the PBGC’s deficit recently hitting a record $34 billion, the future of private pensions looks grim.”

Now let’s focus on what can we do to avoid getting a heart attack due to worries that your pension might go under very soon. It all boils down to realizing you have to save more while in your working years. See the pension as gravy if you get it when you retire. Never be dependent on that income from day one and you will see things differently.

Continue reading Pension Concerns are Alarming

What Did You Purchase in 2012

Hello I did a what have you purchased post like this before about 1 year ago. Here it is to refresh your memory-Assets. I believe it is time for an update. Annual updates are easier for me to share with all of you as I am busy more often now a days. I will disclose what I have purchased and hopefully you guys can share what you bought as well. If you are shy then do it anonymously. For all of you not scared to share your success stories let me be the first one to congratulate you.

I will begin listing all the assets I have purchased and mostly all of them will go up every quarter as I have them on automatic reinvesting status. I will also list any other major purchases that add value to my life one way or another. I do not wish to share too much info, but I hope you can still get some value out of the post and then can track your own accounts.

What did I purchase in 2012:

1. 100 shares of a risky cheap Bank Stock-One Time (HCBK)
2. 100 Shares of a risky telecom Stock-Dollar Cost Averaging (WIN)
3. 100 Shares of various 401k Funds -Quarterly
4. 50 Shares of various Roth IRA Fund Shares-Quarterly
5. A new computer for my blog business and personal use.
6. A new mattress as back was hurting (Unfortunately New mattress has not helped)

It is really exciting to see the numbers increase from time to time, and I hopefully one day will be able to live off my investments. Did you know that if you owned 1000 shares of Altria Stock (MO) it would cost you about 34K dollars to buy all those shares. The dividend you would receive would be about, $ 450 dollars quarterly and $ 1800 dollars per year. Every quarter my dividends are greater as the number of shares grow. Compounding makes me a happy camper.

Imagine waking up to do what you please without being tied down to achieve other peoples dreams, and can contribute as much or as little towards your own dreams. The point in life is to become independent while accomplishing your passion. I feel we all can do this with the right investment strategy. See below for two great articles one about dividend stocks and the other about a retired blogger who is living his dream.

Article on the highest paying dividend champion stocks- Here

Look at numbers Retire by 40 is posting for his update on income and expenses.

What did you purchase in 2012?

Comment if you keep track of your finance accounts like this?

Rich Uncle EL

The stocks mentioned above are not listed or recommended by moneywatch101.com, do your own research before buying any stocks.

What you Don’t Know?

I recently heard a story of a young person who after working for many years invests a percentage of pay in a 401K, but after all those years never actually cared to look at the pay stub to see how much money was exiting every pay period. Can you believe this? I look at every pay stub and analyze it to a tee. What did I want to find out? Basically to see all the amounts taken away by the government and how much is being deposited by my employer to my 401K, and I can not fathom a person not checking this or even knowing the amount on a monthly basis. This is the premise behind the What you Dont Know topic in the title.

If this is very shocking to all of you as it was to me when I heard the audacity going on in some people’s minds. But can you blame them for not caring or not being on top of this aspect of money in their life. Unfortunately yes they are partially to blame if for years the employer was not contributing the exact amount that should have been deducted from said person’s pay stub into retirement accounts. Maybe hundreds or thousands of dollars left in the laps of the employer because people were too lazy to check a simple pay stub. Do you think the employer will fix the issue voluntarily? Maybe but I wouldn’t leave it in their hands.

There has been countless stories of employer financial mismanagement where the pay stub amounts were incorrect or the stories of retirement money not being deposited. Granted some of those stories involve simple easy to fix payroll errors, but if the employee is not aware of it who will catch those errors? It is a simple fact of life we cannot disregard because of all the other things we have to deal with in life.

Simple Pay stub Research:

-Check your exemptions on the pay stub

-Multiply the weekly or bi-weekly amount and make sure it adds up to annual income.

-See how much is going to the government in taxes

-See how much is going to your retirement accounts.

-Analyze the difference between gross and net ( Amount should be equal to tax deductions and 401K contributions)

-Make sure your Social Security number is accurate. ( Social Security Retirement figures depend on this)

The simple easy check list above will help you avoid major errors with your money later. I know it can be hard to take time out for things that might not be of interest to you, but pay stubs should always be analyzed with every new job you get.

What you Don’t Know can hurt you in the long run.

Become Informed with Finances.

Comment and let us know if you have caught any errors on your pay stub?

RichUncle EL

Retirement Plans

Retirement Plans

401K-is a feature of a qualified profit-sharing plan that allows employees and or employers to contribute a portion of their wages to individual accounts. Elective salary deferrals are excluded from the employee’s taxable income (except for designated Roth deferrals). Distributions, including earnings, could be included in taxable income at retirement (except for qualified distributions of designated Roth accounts).

403B– tax-sheltered annuity (TSA) plan is a retirement plan, similar to a 401(k) plan, offered by public schools and certain 501(c) (3) tax-exempt organizations. An individual may only obtain a 403(b) annuity under an employer’s TSA plan.

457-Plans of deferred compensation are available for certain state and local governments and non-governmental entities tax exempt under IRC 501. They can be either eligible plans under IRC 457(b) or ineligible plans under IRC 457(f). Plans eligible under 457(b) allow employees of sponsoring organizations to defer income taxation on retirement savings into future years. Ineligible plans may trigger different tax treatment under IRC 457(f).

409A-applies to compensation that workers earn in one year, but that is paid in a future year. This is referred to as non-qualified deferred compensation. This is different from deferred compensation in the form of elective deferrals to qualified plans (such as a 401(k) plan) or to a 403(b) or 457(b) plan.

Traditional IRA-tax deductible individual retirement account that has strict eligibility requirements based on income, filing status, and availability of other retirement plans (mandated by the Internal Revenue Service). Transactions in the account, including interest, dividends, and capital gains, are not subject to tax while still in the account, but upon withdrawal from the account, withdrawals are subject to federal income tax (see below for details).

Roth IRA-is an IRA that, except as explained below, is subject to the rules that apply to a traditional IRA.

-You cannot deduct contributions to a Roth IRA.

-Qualified distributions are tax-free.

-You can make contributions to your Roth IRA after you reach age 70 ½.

-You can leave amounts in your Roth IRA as long as you live.

SEP IRA-A SEP plan allows employers to contribute to traditional IRAs (SEP-IRAs) set up for employees. A business of any size, even self-employed, can establish a SEP.

Simple IRA Plan– (Savings Incentive Match Plan for Employees) allows employees and employers to contribute to traditional IRAs set up for employees. It is ideally suited as a start-up retirement savings plan for small employers not currently sponsoring a retirement plan.

Just wanted to give my readers a brief description and to list the many options we all have to contribute to a retirement plan. At any stage currently in your life you can make contributions to one of these plans depending on how you are employed even self-employed people have options. Also you can effectively reduce your taxes by contributing to one of these plans which is a win-win situation for anybody. Leave a comment to notify us if you agree or disagree with contributing to these plans. In addition to this if you would actually contribute to more than 1 plan to help you boost your retirement accounts? See IRS.gov for further details on these specific plans.

The picture above is your view after 25 years of contributing to one of these plans.

As always do not forget to Watch your Money!

401 K Calculations

OK here is another great example based on the importance of starting early and staying on track with your 401K finances. I will show three examples of 401k calculations to see the net effect of how much your money can grow given similar rate of return scenarios but different time frames. I stumbled on this calculator and it is one of the best 401K calculators I have ever seen on the Internet. All of the examples will have a rate of return of 5% and a retirement age of 65. Also the annual salary increase is 3% and the employer match is the standard 50% on the first 6%. I do this to show all my readers a simple step anybody can make today like increasing your contribution to help you reap major rewards in the future. Not many people care to run the numbers for themselves or do not bother to get the info on where to find such a great calculator. The leg work is done for you and all you have to do is plug in your specific figures from your employers 401k, 401A, 457b plans, etc.

First Example:

-Age: 25
-Income : 40K
-Contribution #: 10%
-Magic #: 1,008,672

Second Example:

-Age: 30
-Income: 40K
-Contribution # 10%
-Magic #: 721,445

Third Example:
-Age: 35
Income: 40K
-Contribution # 10%
-Magic #: 505,859

Wow what a huge difference those first 10 years make in your magic number. If you start at 25 and do not mess up your plan you will have doubled the money compared to the 35 year old. The proof is in the numbers people and I can not stress this enough. Imagine how great it would be if you could do 20% of your pay from day one. I’m guessing about 2 million bucks. If you start early you will not miss that money as it becomes a part of your pay routine. Also the difference between 8% of pay check contributions and 10% contributions will not effect your net pay as much because it is pretax money.

Once again this is only for informational purposes only so please run your own numbers to see what your magic # will be at retirement age.

LINK To- 401 K Calculator

401K funds might be the only plan you have for your future as Social Security is not guaranteed.

Watch your Money !